The captive insurance industry is set to have a $250 billion global market value by 2028, according to an article in Risk Management.

The piece, written by Barry Weissman, a shareholder in law firm Carlton Fields’ Los Angeles office, added that between 2019 and 2022, the global captive insurance market had increased 24.8 per cent with total premiums written reaching $72 billion in 2021.

“This growth is expected to continue in the coming years, driven by factors such as rising insurance costs and the need for more control over insurance coverage. However, the impact the downturn in 2023 is going to have is not yet known,” wrote Mr Weissman.

Bermuda, the Cayman Islands and Vermont, in the US, are widely acknowledged as the most popular domiciles for establishing captives.

Of about 7,000 captives globally, up from only 1,000 in 1980, about one third are in Bermuda and its two closest rivals.

Mr Weissman said several trends could impact the use and growth of insurance captives in the future, including:

Diverse coverage: the use of captives for non-traditional risks is expected to continue and increase, spanning areas such as life, health and annuity insurance. For example, in 2019, said Mr Weissman, Marsh Captive Solutions established the first captive insurance programme for a retirement plan, enhancing risk management for employee benefits.

Cyber insurance: cybersecurity risks are a growing concern for businesses of all sizes and industries. Mr Weissman wrote: “It is likely captives will continue to play an increasing role in providing tailored coverage for these types of risks. These solutions address the rapidly evolving nature of cyberthreats and offer businesses greater flexibility and customisation.”

Increased regulation: regulatory bodies globally are increasing their oversight of insurance captives. Stringent regulations are being enforced in the United States and Europe to counter tax avoidance and prevent misuse, and ensure businesses are in compliance. “This may lead to greater reporting and capital requirements for captive insurers, which could impact their profitability,” said Mr Weissman.

Technological advancements: technology is rapidly changing the way insurance is provided, and captives are no exception. Insurtech companies are providing new solutions, some of which could revolutionise the industry, including advanced data analytics and tools, software platforms for claims and risk management, and blockchain technology.

“For example, with its secure and transparent digital framework, blockchain could streamline policy management, reduce fraud, increase efficiency, enhance claims processing, and provide real-time risk insights,” said Mr Weissman.

“As technology evolves, captives will need to continue to embrace technological advancements to remain competitive.”

Globalisation: as businesses scale operations globally, international captives will continue to gain prominence. “While captives are more efficient for providing insurance coverage for multinational risks, businesses will need to navigate complex regulations and tax laws in each country,” the article added.

Alternative risk transfer: captives are one form of alternative risk transfer offering businesses unique risk transfer options outside of traditional channels. ART solutions, like captives, risk retention groups and insurance-linked securities, may gain traction as businesses look for new ways to manage unique or difficult-to-insure risks, wrote Mr Weissman.

Expansion into new markets: as companies become more comfortable with captives, we will likely see the expansion of captive insurance into new markets and industries, addressing where traditional insurance coverage is limited or unavailable.

Collaboration with traditional insurers: collaboration between captives and traditional insurers will provide more comprehensive insurance solutions, combining customised and general coverage.

Mr Weissman added: “The future for captives is likely to be shaped by increased regulation, technology, globalisation and new alternative risk transfer solutions.

“While these can also bring challenges and a need to stay ahead of emerging risks, they are likely to remain a popular option for businesses looking to manage their risks in a more customised and cost-effective way.

“The benefits are likely to outweigh any obstacles in the years to come and as a result, we can expect to see continued growth and innovation in the captive insurance industry.”